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Why Nikola Stock Is Down Today

By John Rosevear – Jul 22, 2020 at 1:51PM

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A plan to redeem millions of warrants has investors concerned about dilution. Should they be?

What happened

Shares of electric-semi start-up Nikola (NKLA 0.73%) were trading lower on Wednesday on dilution concerns after the company announced a plan to redeem its publicly traded warrants by issuing millions of new shares. 

At 1:30 p.m. EDT, Nikola's shares were trading at $37.21, down about 6.4% from Tuesday's closing price.

A red Nikola Two, an electric semi truck, pulling an Anheuser-Busch trailer.

Nikola plans to begin building its electric semi trucks next year. Image source: Nikola.

So what

In a statement on Wednesday morning, Nikola said that it will begin redeeming the 23 million publicly traded warrants issued by the special-purpose acquisition company it merged with in June, VectoIQ Acquisition. Holders have 30 days to redeem the warrants, the company said.

The warrants, issued by VectoIQ in 2018, give holders the right to buy one share of Nikola stock from the company at $11.50, well below the stock's recent price levels. 

Nikola said on Wednesday that holders of the warrants, which trade under the ticker symbol "NKLAW," must redeem them by 5 p.m. EDT on Aug. 21, or they will expire with a value of just $0.01. 

(There are additional Nikola warrants that were issued to VectoIQ investors in private placements; those that are still held by the original investors are exempt from this redemption.)

Now what

This wasn't a surprise -- investors have known about the warrants all along -- so why is the stock trading lower today?

Here's why: Note that if all of the warrants are redeemed, Nikola will issue about 23 million new shares of stock over the next month. (It'll also raise about $264 million, of course.) 

Simply put, investors are worried about dilution -- but with 1.18 billion shares outstanding, and a float of nearly 800 million shares, those 23 million new shares aren't likely to have a drastic effect.

Auto investors can expect to learn more when Nikola reports its second-quarter earnings result, its first report as a public company, after the market closes on Aug. 4.

John Rosevear has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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